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2015 (12) TMI 95 - ITAT HYDERABAD

2015 (12) TMI 95 - ITAT HYDERABAD - TMI - Adjustment as interest on short term facility extended - TPA - Held that:- Considering the orders of the DRP in AY. 2006-07 and also order of ITAT in AY. 2008-09 in assessee's own case on the issue of adjustment towards interest and advance provided to AEs, we direct the AO/TPO to adopt EURIBOR + 2% rate of interest for making the adjustment under the provisions

Adjustment in respect of share application money - Held that:- The investments ar .....

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at factor also in mind, we are of the opinion that adjustment proposed by the TPO as confirmed by the DRP is not warranted. We direct the same to be deleted. Ground is allowed.

Adjustment in respect of corporate guarantee extended - Held that:- There is a service rendered to AE by providing guarantees and therefore invoking provisions of TP does arise on the facts of the case. Considering case of M/s. Four Soft Ltd. [2011 (9) TMI 634 - ITAT HYDERABAD ] the adjustment made on the guara .....

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and foreign exchange fluctuations (Credit) - Held that:- We agree with the finding of the Assessing Officer as held by the DRP that the income from settlement of patent infringement cannot become part of operating revenues either on bulk drug manufacturing (API) segment or on product development service (PDS) segment which are two different segments in which assessee is operating and accordingly we agree with the DRP's stand that this income falls under the category of 'other income' and not op .....

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rcise of FAR analysis for comparability purpose. For the reasons stated above, we agree with the Assessing Officer/DRP that this income from settlement of patent infringement cannot be considered as operational income while working out the segmental profits or as total profits of the assessee for the purpose of comparison.

For credit of foreign exchange fluctuations this issue was already decided in favour of assessee holding that foreign exchange fluctuation gain/loss are part of ope .....

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multiple year data was taken by assessee some of the companies selected by it are rejected. TPO should have considered data of this year. Moreover, when assessee made detailed objections before the DRP, DRP did not adjudicate the objection at all as can be seen from the order. Therefore, this forum is handicapped to that extent, in deciding the issue one way or the other. Since the objections are not examined by the DRP, we are of the opinion that that selection of comparables should be restored .....

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rom the returned income, corresponding to adjustment u/s. 92CA made by Transfer Pricing Officer in Astrix Laboratories Limited - Held that:- there is no dispute with reference to the receipt of these amounts, one as an income i.e., management fee of ₹ 1.12 crores and other being the reimbursement of expenses of ₹ 1.05 crores. As far as the reimbursement of expenditure is concerned, we have already directed in the earlier ground to consider the nature of amount and exclude from the co .....

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ure. Whether the same can be allowed in the hands of other domestic company or not has no bearing in the assessee's hands as the said amount was received and was accepted by the assessee to be taxed. We approve the DRP observation that taxability or otherwise of the amount in one hand does not affect the adjustment in other hand unless it is provided so in the Act. Therefore, this ground of the assessee is rejected

Deduction claimed u/s. 10B of the Act in respect of Export Oriented Un .....

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ed. It further suggested that the demand on account of disallowance of deduction be kept in abeyance till the decision of the Hon'ble High Court.Assessee has raised this issue but submitted that the matter is subjudice. Since DRP has already given clear directions on the issue, we uphold the directions of DRP with an observation that AO should follow the same as and when the issue is decided by the Hon'ble High Court. This ground is considered allowed for statistical purposes.

Disallo .....

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ance was upheld by CIT(A) for the AY 2005-06. However, on going through the facts and materials on record, we are of the view that the expenditure incurred is allowable as deduction if not u/s 36(1)(iv) but u/s 37 of the Act as it is exclusively incurred for the purpose of business. Moreover, it is not disputed that assessee has deducted tax at the time of making contribution to the fund and has treated it as part of salary of the concerned directors. That being the case, the expenditure incurre .....

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le for deduction u/s. 10B and in the process reducing the benefit u/s. 10B - Held that:- Allocation of expenditure as was done by the assessee is more rationale and is in tune with the principles laid down by the Institute of Cost Accountants and also for the purpose of Company Law. Therefore, considering the detailed objections raised by the assessee as placed in the objections to the DRP, we are of the opinion that the allocation by the assessee is to be upheld. Assessing Officer is directed t .....

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icer we restore the issue to the file of AO with the same direction to examine assessee’s claim in respect of expenditure incurred for clinical trials outside India after giving assessee proper and sufficient opportunity to establish the case in regard to explanation to Section 37(2AB).

Delete expenditure attributed under Rule 8D of Income tax Rules, 1962 for earning exempt dividend from Mutual funds - Held that:- The action of AO cannot be upheld. As seen from the order, he invoked .....

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o monitor the same. For the same. AO is directed to disallow an amount of ₹ 1,00,000/- under the provisions of Section 14A.

Depreciation @ 12.5% being 50% of normal depreciation in respect of non-compete fee - Held that:- The depreciation cannot be allowed on an amount of non-compete fee, which was in fact paid to the Managing Director of the Company for not taking any employment. This cannot be considered under section 32(1) as an intangible asset

Depreciation on bro .....

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assessment year 2002- 2003, consequently, depreciation has to be allowed on WDV in this year. He is empowered to take rectification proceedings in case that order was not upheld by the Hon'ble High Court. In view of this, to that extent of claim of depreciation amounting to on brought forward written down value, Assessing Officer is directed to allow the depreciation after verifying the WDV figures.

LTCG or STCG - difference between the market value for the purposes of levy of stamp .....

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He did not bring the capital gain offered in AY. 2006-07 to this year. There cannot be computation of capital gains in two assessment years on sale of one property. The action of AO is not according to the provisions of the Act.AO should have considered that the gains become Long Term Capital Gain as the same was purchased in April, 2003 and according to AO sold on 24-08-2006. But the same was brought to tax as Short Term Capital Gain. Even the DRP failed to consider the same when assessee point .....

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Y. 2006-07 itself.

Restricting the deduction under clause (II) of Explanation to Section 115JB in respect of export profits from the 100% export oriented undertaking eligible for deduction under sec. 10B - Held that:- Supreme Court in the case of Ajanta Pharma (2010 (9) TMI 8 - SUPREME COURT ) is against the Department and in favour of the assessee. The Apex Court laid down the law that for purposes of computing book prof it, the deduction to be allowed under clause (iv) of Explanatio .....

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d into the computation scheme as prescribed in sec. 115JB which is an alternative computation to the normal computation of income. The Court also held that the deduction under clause (iv) of Explanation for the export prof its should not be phased out as provided in sub-section (1B) of sec. 80HHC because, 115JB is an independent code and it covers full export prof its as the eligible prof its for the purposes of book prof its tax and no phasing is required to be carried out - I.T.A. No. 2123/HYD .....

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ure of pharmaceutical products, mainly Active Pharma Ingredients (in short API ). During the year, assessee filed return of income declaring total loss of ₹ 40,04,39,585/- under the normal provisions of the IT Act and book profit/loss of Rs. (-) 5,17,28,098/- u/s. 115JB of the Act. This return was accepted u/s. 143(1) and a notice u/s. 143(2) was issued. During the course of proceedings, assessee has revised certain claims. Since assessee transacted with its Associated Enterprise [AE] as d .....

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P disposed off the objections vide its order dt. 26-09-2011 u/s. 144C of the Act. Pursuant to the said directions, AO passed the final order u/s. 143(3) determined the total income at ₹ 1,07,93,35,036/- vide order dt. 20-10-2011. 3. Aggrieved on the above action of AO, assessee has raised as many as 20 grounds. Out of which, Ground No. 1 and 20 are general in nature and does not require any adjudication. 4. We have heard the Ld. Counsel Mr. Raghunathan Sampath, Ld. AR and Mr. T. Venkata Re .....

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ies NV, Belgium (Associated Enterprise) adopting interest rate of 14% per Indian money markets. 5. The facts leading to the above ground are that assessee advanced a sum of EURO 14.61 Mio during December, 2005, EURO 2.25 Mio during April, 2006 and further sum of EURO 61.50 Mio during May, 2006 to Matrix Laboratories NV, Belgium i.e., AE. The amounts were repaid by Matrix Laboratories NV on 19-10-2007, out of equity contribution made by Matrix BV which funds were received by it in the form of equ .....

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ess, no interest could be charged. Relying on the decision of Mumbai Tribunal in the case of VVF Ltd., Vs. DCIT alternatively, it contended that ABN Amro Bank provided loans with an interest rate of EURIBOR + 60-125bps for Tranche A and EURIBOR + 129bps for Tranche B. Therefore, the relevant period interest would be 3.35% and the same can be restricted to the above. On the reason that earlier year s issues are pending before the ITAT, the DRP did not interfere. 5.1 Ld. Counsel fairly admitted th .....

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for making the adjustment under the provisions. The ground is accordingly considered allowed. Ground No. 3: The Dispute Resolution Panel erred in confirming the Transfer Pricing Officer's order under sec. 92CA of the Act, for making an adjustment of ₹ 8,04,750/- as interest in respect of share application money of ₹ 4,60,00,000/- deposited with Matrix Laboratories BV, Netherlands (Associated Enterprise) which was converted as Equity Share capital subscription in the subsequent pe .....

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iod of application to allotment. Assessee objected to the calculation of interest stating that due to regulatory approvals, there was delay in allotment, but basically the amount was towards share capital and TPO is not correct in characterizing the amount as loan. It is further contended that from the date of remittance to the year ending, there is only period of 1.5 months instead of two months calculated by the TPO. While not agreeing with the principle of interest computation, the DRP, howev .....

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the orders of the DRP. 6.2 The co-ordinate Bench in the case of Prithvi Information Solutions Ltd., Vs. ACIT [34 ITR (Trib) 429 (ITAT, Hyd)] (supra), has considered similar issue wherein assessee also made investments towards equity and shares have been allotted. The facts are similar to assessee's case Vide para 12, the co-ordinate Bench considering various orders passed by the co-ordinate Benches referred to in the order held that the investments are in the nature of equity then, they cann .....

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e are of the opinion that adjustment proposed by the TPO as confirmed by the DRP is not warranted. We direct the same to be deleted. Ground is allowed. Ground No. 4: The Dispute Resolution Panel erred in confirming the Transfer Pricing Officer's order under sec. 92CA of the Act, for making an adjustment of ₹ 19,11,68,600/- in respect of corporate guarantee extended to Matrix Laboratories NV, Belgium a wholly owned subsidiary of the tax-payer. Ground No. 5: The Dispute Resolution Panel .....

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nd also gave corporate guarantee to ABN Amro Bank, Netherlands based on which the bank gave a loan of EURO 165 Million (equivalent to INR 955.84 Crores). In addition, assessee also provided corporate guarantee to ABN Amro Bank, Singapore and Rabo Bank, Singapore in respect of loan to Mchem Pharma Group Ltd., for an amount of ₹ 30.40 Crores. TPO considered the corporate guarantee and adopted a guarantee commission @ 2% on amount extended by assessee, as against assessee's contention of .....

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poration Limited (previously known as Semantic Space Technologies Ltd) in ITA No. 237/Hyd/2014 dt. 31-12-2014. He also relied on various other co-ordinate Bench decisions. 7.2 After considering the rival contentions, we are of the opinion that there is a service rendered to AE by providing guarantees and therefore invoking provisions of TP does arise on the facts of the case. The co-ordinate Bench of Hyderabad in the case of M/s. Four Soft Ltd., in ITA No. 1495/Hyd/2010 [44 Taxman.com 479] has c .....

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Vs. ACIT in ITA No. 5031/Mum/2012 dt. 13-11-2013, the Mumbai Bench of Tribunal after analyzing facts on that case has held that 0.53% corporate guarantee rate was appropriate. Based on that, co-ordinate Bench in the case of Prolifics Corporation Limited (previously known as Semantic Space Technologies Ltd) in ITA No. 237/Hyd/2014 dt. 31-12-2014 directed the TPO to adopt the rate of 0.53%, which is considered as arm's length in other cases also. Respectfully following the same, we direct the .....

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oreign exchange fluctuations (Credit) of ₹ 9,56,79,559/- 8. As seen from the above ground, there are two issues to be considered. Ground No. 6(i) is on the issue of income from settlement of patent infringement suit credited to P&L A/c of ₹ 26,83,94,695/-. This issue was considered by the co-ordinate Bench in the later year in assessee's own case for AY. 2008-09 and Ld. Counsel fairly admitted the issue was held against assessee. In that above referred case, the coordinate Be .....

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t of ₹ 97.87 crores was offered as income in assessment year 2005-2006 based on receipt basis. As can be seen the amount of ₹ 26.91 crores credited to the P & L account this year is only a notional deferred income whereas the actual income was received much earlier. As can be seen from the facts on record, the corresponding expenditure pertaining to development of 'Perindopril' was spent much earlier i.e., much prior to assessment year 2005-2006. Therefore, there is no co .....

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ection 37(1). In that context, the Hon'ble Delhi High Court has analyzed the principles relating to patent infringement rights and held that they are purely compensatory in nature and confirmed the liability of amount under section 37(1) of the Act and the ITAT order was accordingly confirmed by the Hon'ble Delhi High ITA.No.66/Hyd/2013 Mylan Laboratories Ltd. (Formerly Matrix Laboratories Ltd.) Court. But as seen from the judgment, the issue is not with reference to the Transfer Pricing .....

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ation of income for the year as the same is already taxed in the earlier year. We are not considering either taxability of the amount or the allowability of the amount as a deduction/ expenditure. The issue pertains to the transfer pricing adjustments which operate under different mechanism. While arriving at the profits of an organization, the operating profits over the operating cost is considered as a basic principle to arrive at operating profits in an assessee's case. As discussed in th .....

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ined is, whether the income accounted by the assessee will become operational income for the purpose of arriving at the operational profit. The Assessing Officer has excluded the same stating that the same is nothing but notional ITA.No.66/Hyd/2013 Mylan Laboratories Ltd. (Formerly Matrix Laboratories Ltd.) revenue. We agree with the finding of the Assessing Officer as held by the DRP that the income from settlement of patent infringement cannot become part of operating revenues either on bulk d .....

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profits, the same gets skewed because of inclusion of extraordinary items. It was decided in number of cases by the Tribunal that incomes of extraordinary nature are to be excluded and further extraordinary events in any company also make it non-comparable while doing exercise of FAR analysis for comparability purpose. For the reasons stated above, we agree with the Assessing Officer/DRP that this income from settlement of patent infringement cannot be considered as operational income while work .....

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tions. Accordingly, this part of ground is considered rejected. 8.2 Coming to the issue in Ground No. 6(ii) i.e., credit of foreign exchange fluctuations of ₹ 9,56,79,559/-, the TPO while making the adjustments on the TP provisions excluded the gain on foreign exchange fluctuations out of operational revenues holding that it is not directly related to the given activity of assessee of manufacturing and selling pharma products. The DRP upheld the action of TPO in removing foreign exchange g .....

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in ITA No. 1961/Hyd/2011 dt. 23-11-2012 [32 Taxman.com 21 (Hyd)] and Brigade Global Services [33 Taxman.com 618]. 8.4 Ld. DR on the other hand supported the order of lower authorities. 8.5 We have considered the submissions of the parties in this regard. This issue was already decided in favour of assessee holding that foreign exchange fluctuation gain/loss are part of operating margin of assessee as well as comparable companies while undertaking ALP adjustments. The co-ordinate Bench in the ca .....

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export business. The Courts and Tribunals have held that foreign exchange fluctuation gains form part of the sale proceeds of exporter-assessee. The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee company……. Following the aforesaid decision of the Bangalore Bench of the Tribunal, the Hyderabad Bench of the Tribunal held in the case of Four Soft Ltd. (supra) in the following manner- 16. With regard to the exclusio .....

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the associated enterprises of the assessee. Our view in this behalf is fortified by the decisions of the Bangalore Bench of the Tribunal in the case of SAP Labs India Ltd. supra and Bombay Bench of the Tribunal in the case of Deutsche Bank A.G. V/s. D. CIT reported in 86 ITD 431…… Respectfully following the aforesaid decisions of the Tribunal, and considering the contention of the assessee that for the assessment year 2008-09 foreign exchange fluctuation gain/loss has been consider .....

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perating margin of the comparable company". 8.6 In view of the above, we direct the TPO to consider the foreign exchange gain or loss as part of operating profits of assesseecompany. similarly, he is also directed to consider the foreign exchange gain or loss as part of operating profits of comparable companies also while working out the ALP while doing TP adjustments. Ground is considered allowed accordingly. Ground No. 7: The Dispute Resolution Panel erred in not directing the deletion of .....

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Crores to Mylan Pharmaceuticals Inc, USA and ₹ 1.02 Crores to Xiamen Mchem Pharma, China aggregating to ₹ 81.87 Crores. The company also purchased raw materials to the tune of ₹ 35.88 Crores from Xiamen Mchem Pharma, China. The company further received/earned an amount of ₹ 40.52 Crores in respect of product development services rendered to Mylan Laboratories Inc, USA. Apart from the above, the company purchased samples from Doc Pharma, Belgium to the tune of ₹ 1.6 .....

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es and filing a Transfer Pricing report. 9.2 The TPO rejected the comparables selected by assessee on the following grounds vide its show cause notice dated 24-02-2010: i. Current year data not used but multiple year data applied; ii. Appropriate key words are not used; iii. Filters applied not proper. The assessee argued that due to non-availability of complete data for current year at the time of benchmarking the international transactions of assessee against external comparables, the data of .....

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tand that use of multiple year data is consistent with the provisions of the Rule 10B(4) of the Income Tax Rules, also submitted the computation of the average margin of the comparables by using the data of only the relevant financial year i.e., FY 2006-07 and arrived at the average margin of 9.83% which was filed with the TPO. 9.4 However, the TPO rejected assessee s selection of comparables and undertook fresh selection of comparables by having various filters. The TPO selected the comparables .....

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iled objections vide para 5(b) of the objections before the DRP. However, DRP was silent on the issue and has not adjudicated the objections raised by assessee. 9.5 Ld. Counsel submitted that assessee is in the business of active pharmaceuticals ingredients which are generally called bulk drugs and was not involved in formulations at all. He referred to the DRP s order particularly the finding given in Ground No. 7 that assesseecompany is engaged in manufacture and sale of APIs and about to comm .....

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s operating under a different set of business functionality. Divi s is engaged in manufacture of generic APIs, custom synthesis of active ingredients and intermediates for innovator companies and other specialty chemicals like peptide building blocks and Nutraceuticals. 50% of the total revenue is earned from custom synthesis for innovator customers. Further, as is seen from Annual Report Per Point # 11 of notes to accounts, exports constitute about 93% of the total sales where as exports consti .....

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engaged in the manufacture of chemical pharmaceuticals. Since the product profile of the company is completely different from that of assessee, the same is to be rejected as comparable. 9.7 AR further submitted that assessee has raised objections vide ground No. 5(b) from page 42 to 59 and DRP has not adjudicated the issue. It was the submission that these two companies cannot be treated as comparable due to its business profile and further AO wrongly rejected the companies selected by assessee .....

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e made detailed objections before the DRP, DRP did not adjudicate the objection at all as can be seen from the order. Therefore, this forum is handicapped to that extent, in deciding the issue one way or the other. Since the objections are not examined by the DRP, we are of the opinion that that selection of comparables should be restored to the authorities. As can be seen from the objections raised, assessee objected selection of these two companies as comparables. This require re-examination b .....

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e involved in this ground is restored to the file of TPO, by setting aside the order of TPO/AO to that extent. Ground No. 8: The Dispute Resolution Panel erred in confirming Assessing Officer's action in not deducting ₹ 3,31,40,155/- from the returned income, corresponding to adjustment u/s. 92CA of the Act, made by Transfer Pricing Officer in Astrix Laboratories Limited, (a resident JV Company) on the ground that the amounts paid by the said resident company to the assessee are not at .....

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equesting for a deduction of said income as it amounts to taxation of the amount. The DRP rejected the contention stating that the taxability or otherwise of an issue in another company would not determine the basis of taxation in the case of assessee. 10.1 This issue was already decided against assessee in ITA No. 66/Hyd/2013 vide para 34 which is as under: 34. After considering the rival contentions we are not sure how this ground could arise. As seen from the objection before the DRP, it was .....

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s pending in the case of Astrix but since the amount of management fee of ₹ 1.12 crores and reimbursement of expenses at ₹ 1.05 crores were accounted by the assessee, these amounts should be excluded in the hands of the assessee as they are excluded in the hands of Astrix. This contention of the assessee cannot be accepted on the reason that there is no dispute with reference to the receipt of these amounts, one as an income i.e., management fee of ₹ 1.12 crores and other being .....

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saction is between two domestic companies transfer pricing regulations does not apply in the impugned year. If one domestic company paid to its AE and assessee receives from AE, the transactions are different in nature. Whether the same can be allowed in the hands of other domestic company or not has no bearing in the assessee's hands as the said amount was received and was accepted by the assessee to be taxed. We approve the DRP observation that taxability or otherwise of the amount in one .....

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ts leading to the above ground are that assesseecompany is engaged in manufacturing and sale of API (bulk drugs). The unit situated at Jeedimetla -unit 3.2 is said to be eligible for claiming deduction u/s. 10B of the Act. AO following the order u/s. 263 dt. 13- 10-2010 for AY. 2005-06 held that unit is not newly established undertaking and was existing prior to incorporation of provisions of Section 10B and conditions are not fulfilled, further, the unit was not located in export process zone. .....

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to revisional proceedings by the CIT and the WP is pending before the Hon'ble High Court of AP. DRP considered it fit not to interfere with a stand of AO, but however, directed the AO to follow the judgment of Hon'ble AP High Court as and when the issue was decided. It further suggested that the demand on account of disallowance of deduction be kept in abeyance till the decision of the Hon'ble High Court. 11.1 Assessee has raised this issue but submitted that the matter is subjudice. .....

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Ground No. 11: The Dispute Resolution Panel erred in confirming the Assessing Officer's action in disallowing ₹ 36,00,000/- being Gratuity paid during the year to Mr. N. Prasad former Executive Chairman and Managing Director of the Company on the ground that it is not covered under the Payment of Gratuity Act. 12. Briefly the facts relating to this issue are, during the assessment proceeding, AO noticed that assessee has claimed deduction on account of contribution made to superannuati .....

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r and Board Mills Pvt. Ltd., 189 ITR 309 (Bom.); and 2. CIT Vs. Punjab Financial Corporation Ltd., 295 ITR 510 (P&H) 12.1 AO however did not accept the contention of assessee. He was of the view that contribution to superannuation fund/ gratuity fund can only be claimed as deduction as per the provisions of section 36(1)(iv) and not u/s 37, which is a residuary provision. Accordingly, he disallowed the claim of deduction. Though the assessee objected to such disallowance before DRP, but, the .....

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ection 37. It was submitted that as the assessee has treated the contribution as part of the salary of the specified directors and has also deducted tax on the said amount, it ceases to be in the nature of contribution to a superannuation/ gratuity fund and accordingly it is allowable as expenditure u/s 37. In support of such claim, he relied upon a decision of the Hon ble Gujarat High Court in case of CIT Vs. Karamchand Premchand Pvt. Ltd. [200 ITR 281]. The Ld. AR submitted that unless there i .....

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as other materials on record. From the facts and materials on record, it is evident that the incurring of expenditure has not been doubted or disputed by AO. The only reason for which the AO disallowed the expenditure is since contribution to superannuation / gratuity fund is covered u/s 36(1)(iv) the same cannot be allowed u/s 37. The DRP has confirmed the disallowance solely for the reason that similar disallowance was upheld by CIT(A) for the AY 2005-06. However, on going through the facts a .....

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cial Corporation Ltd., [295 ITR 510] (supra). Similar view was also taken in later year in assessee s own case. Accordingly, we delete the addition made by the AO. Ground No. 12: The Dispute Resolution Panel erred in confirming the Assessing Officer to allow a sum of ₹ 5,46,85,050/- being amount debited to Profit & Loss account in respect of Employee Stock Option Scheme. 13. The assessee formulated employee stock option plan for granting certain stock options to its employees/Directors .....

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ocon Limited vs. DCIT (LTU) Bangalore vide ITA.368 to 371/Bang/2010 etc., dated 16- 07-2013 and accordingly, requested for restoring the issue to the file of the Assessing Officer to examine in the light of the findings and decision of the Special Bench of the ITAT. In the case of Dr Reddy Laboratories the issue was decided as under: 9.3 After hearing the case, the Special Bench of the Income-tax Appellate Tribunal Bangalore in the case of Boicon Ltd Vs DCIT held that ESOP discount (difference b .....

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as ₹ 919, the assessee claimed that it had given a discount of ₹ 909 which was allowable as a deduction as 'employee compensation. Though the options vested equally over four years, the assessee claimed a larger amount in the first year than was available under the SEBI guidelines. The AO & CIT(A) rejected the claim on the ground that there was no "expenditure". On appeal to the Tribunal, the issue was referred to the Special Bench. HELD by the Special Bench: (i) Th .....

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th situations, the employees stand compensated for their effort. By undertaking to issue shares at a discount, the company does not pay anything to its employees but incurs the obligation of issuing shares at a discounted price at a future date. This is nothing but "expenditure" u/s 37(1); (ii) The liability cannot be regarded as being "contingent" in nature because the rendering of service for one year is sine qua non for becoming eligible to avail the benefit under the sche .....

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e liability contingent; (iii) However, the obligation to issue shares at a discounted premium does not arise at the stage the options are granted. It arises at the stage that the options are vested in the employees. The amount deductible has to be determined based on the period and percentage of vesting under the ESOP scheme; (iv) There is likely to be a difference in the quantum of discount at the stage of vesting of the stock options (when the deduction is allowable) and at the stage of exerci .....

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st year defies logic. As the options vest equally over a period of four years, the deduction ought to be claimed in four equal installments on a straight line basis. The decision in the case of Ranbaxy Laboratories 124 TTJ 771 (Delhi) was reversed and S.S.I. Ltd. v. DCIT 85 TTJ 1049 (Chennai) approved, PVP Ventures 211 Taxman 554 referred. The decision of Spray Engineering Devices Ltd 53 SOT 70 (Chd) was also approved. The above decisions referred by Special Bench was relied upon by assessee, th .....

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ra). Ground is allowed for statistical purposes. Ground No. 13: The Dispute Resolution Panel erred in confirming the Assessing Officer's order in rejecting the basis for apportionment of common corporate overhead expense to all the units of the company including 100% Export Oriented undertakings eligible for deduction u/s. 10B of the Act and in the process reducing the benefit u/s. 10B by ₹ 1,32,86,319/- for Unit 3.2 and ₹ 2,17,54,027/- for Unit 7. 14. This ground is on the quant .....

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benefit. The assessee is contesting the allocation. Since similar issue was pending in the earlier year, the learned DRP did not intervene with the issue. 14.1 It was submitted that Assessee has identified the corporate overheads on the basis of accepted cost accounting principles and also guidance note with reference to company law. It was submitted that the indirect manufacturing expenses are distributed over operating divisions on the basis of gross material cost and personal costs are distri .....

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on the decision of ITA.No.66/Hyd/2013 assesses own case and Hon'ble Delhi High Court in the case of S.T. Micro Electronics Pvt. Ltd. in ITA.No.928/2010 wherein the Hon'ble High Court upheld the ITAT order and in turn of the Ld. CIT(A) order wherein the bifurcation of common expenses on the basis of ratio of employees head count was held reasonable, conservative and justified. It was the contention that the rationale adopted by the assessee should be accepted. 14.2 This issue was conside .....

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ad account which is reasonable. Adopting sales turnover as the basis may result in skewed allocation. For example, if a particular unit is producing only high cost/ high price product, the effort and service cost for that unit will be less whereas, the profit margin will be more. If the unit is not producing much in the year and has lesser sales, allocation of amount on the basis of turnover may result in under allocation of service cost. Even in the case where the unit starts production only at .....

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ore rationale and is in tune with the principles laid down by the Institute of Cost Accountants and also for the purpose of Company Law. Therefore, considering the detailed objections raised by the assessee as placed in the objections to the DRP, we are of the opinion that the allocation by the assessee is to be upheld. Assessing Officer is directed to accept the assessee's allocation of corporate overheads. Accordingly, ground is allowed . Respectfully following the same we direct the AO to .....

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d to form 3CL to point out that such expenditure was eligible for weighted deduction. He has contended that assessee is therefore is claiming weighted deduction only to the extent of certification in respect of clinical trials carried out by it. He referred to the order of the co-ordinate Bench in assessee s own case in AY. 2009- 10 in ITA No. 611/Hyd/2014 dt. 10-12-2014 to submit that the matter was referred to the AO for necessary examination. The order of coordinate Bench vide para 12 is as u .....

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see for this purpose by sending the matter to the Assessing Officer. Since the learned Departmental Representative has not raised any objection in this regard, we restore this issue to the file of the Assessing Officer with a direction to examine the assessee s claim for weighted deduction under S.35(2AB) in respect of expenditure incurred for registering patents outside India only to the extent of ₹ 73.67 lakhs afresh, after giving assessee proper and sufficient opportunity to establish i .....

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es. Ground No. 15: The Dispute Resolution Panel erred in not directing the Assessing Officer to delete ₹ 11,17,244/- being expenditure attributed under Rule 8D of Income tax Rules, 1962 for earning exempt dividend of ₹ 24,26,877/- from Mutual funds. 16. Invoking provisions of Section 14A r.w. Rule 8D, AO disallowed an amount of ₹ 11,17,244/- as expenditure for earning an amount of ₹ 24,26,877/- claimed as exempt being derived from mutual funds. It was the assessee s conte .....

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action of AO cannot be upheld. As seen from the order, he invoked Rule 8D which was not applicable for the impugned assessment year. However, DRP confirms the disallowance made under Rule 8D as reasonable amount . ITAT is holding an amount of 2% to 10% on the exempt income as reasonable amount in the year prior to application of Rule 8D. Accordingly, we are of the opinion that an amount of ₹ 1,00,000/- can be considered as a reasonable amount incurred for earning the exempt income, conside .....

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iotech Limited during the year & b) Depreciation @ 25% amounting to ₹ 11,86,523/- on brought forward written down value of ₹ 47,46,094/- in respect of Noncompete fee of ₹ 200 lakhs paid to Medispan Ltd., by Medicorp Technologies Ltd., (amalgamating company) in the previous year relevant to Asst. Year 2002-03. 17. This ground is against the claim of depreciation on different amounts paid by the assessee. The sub ground(b) is with reference to the claim of depreciation of  .....

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of fee was considered eligible for depreciation, the Assessing Officer did not grant the depreciation on the reason that reference application is pending before the Hon'ble High Court and the issue has not been finalized. This cannot be a reason for denying the depreciation claimed. Since, ITAT has already ordered the depreciation to be allowed in assessment year 2002- 2003, consequently, depreciation has to be allowed on WDV in this year. He is empowered to take rectification proceedings i .....

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in respect of non-compete fee of ₹ 40 Lakhs paid in relation to Concord Biotech Limited during the previous year relevant to financial year 2006-2007. It was stated that the said amount of ₹ 40 Lakhs is capitalized as intangible asset in the books of accounts of the assessee during the year and depreciation at 25% is claimed U/s. 32. As per agreement with Mr. Sudhir Naidu, the payment was in AY. 2006-07. Without examining the year of payment or the year of capitalization, the Assess .....

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s upheld by the ITAT, Chennai Bench (supra). The learned Assessing Officer relying on the decisions of the ITAT, Chennai Bench in the case of AB Mourya Pvt. Ltd. in ITA.No.1293/2006 dated 23-11-2007 and Guruji Entertainment Net Work Ltd. reported in 14 SOT 556 (Del.); M.M. Nissim & Co. vs. ACIT (2007) 18 SOT 274 (Mum.) and Motor Surveyors Pvt. Ltd. vs. ITO 32 SOT 268 (Chennai) rejected the claim of the assessee and DRP upheld the order of the AO. 17.3 Ld. Counsel submitted that the issue is .....

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in the case of Tecumse India Pvt. Ltd. Addl. CIT 5 ITR TRIB 50 (Del.) wherein the proposition canvassed by the assessee that noncompete fee is revenue expenditure was rejected and held that noncompete fee for acquisition of business has been held as capital expenditure as the same was incurred for the initial outlay of the business. Following the above principles and the decision of the Hon'ble Delhi High Court in the case of Hidustan Coco Beverages Pvt. Ltd. 331 ITR 192 (Del), the ITAT, Ch .....

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reement entered into between two parties. It does not represent any intangible asset, such as, knowhow, patents, copyrights, trademarks, licences, franchises, etc. Therefore, in view of decision of the Hon'ble Delhi High Court in the case of Hindustan Coca Cola Beverages P. Ltd. non-compete agreement would not create an asset of intangible nature eligible for depreciation under section 32(1)(ii) of the Act. The decision of the Tribunal, Chennai Bench in the case of ITO (OSD) v. Medicorp Tech .....

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ee. As can be seen from the above, the Tribunal has distinguished the decision in the case of Medicorp relied by the assessee itself, which is reported at (2010) 2 ITR (Trib.) 367 (Chennai). In view of this, we are of the opinion that the depreciation cannot be allowed on an amount of non-compete fee, which was in fact paid to the Managing Director of the Company for not taking any employment. This cannot be considered under section 32(1) as an intangible asset . 17.4 Accordingly, the claim of d .....

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capital gain by ignoring the fact that a) The market value for levy of stamp duty on the date of transfer on 30.09.2005 (being the date of handing over possession of the property) is lower than sale consideration, and b) Profit of ₹ 1,52,66,486/- (sale price ₹ 7,77,99,098/-, less cost ₹ 6,25,32,612) from sale of the said land was already offered as short term capital gain in Assessment Year 2006-07 based on the date of handing over of the possession of the property to the buyer .....

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operty however, was registered on 24-08-2006 relevant for impugned assessment year, AO invoking the provisions of Section 50C considered the registration value and reworked out the capital gains by bring the difference to capital gains at ₹ 8,55,50,992/-. The DRP did not interfere as the proceedings for AY. 2006-07 were reopened and are pending. 18.1 Ld. Counsel placed on record the order U/s. 143(3) r.w.s. 147 in AY. 2006-07 where in AO did not make any variation except stating that the i .....

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cted the moment the property was handed over, the sale consideration was also received. So the capital gain is correctly offered by assessee in AY. 2006-07 itself. (b) Provisions of Section 50C can be invoked but what AO did was to bringing to tax only the difference in SRO price and Sale Price to tax. He is bound to calculate the capital gains. He did not bring the capital gain offered in AY. 2006-07 to this year. There cannot be computation of capital gains in two assessment years on sale of o .....

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for AY. 2006-07 were pending. The order of AO in the reassessment proceedings indicate that AO did not reduce the capital gains offered in this year. This indicates that the action of assessee in offering Short Term Capital Gain was accepted. (e) Even though, the provisions of Section 50C was amended to clarify that the SRO value as on date of agreement of sale has to be considered that need not be considered here as AO on facts accepted capital gain in AY. 2006-07 itself. 18.3 For the reasons .....

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computation instead of basing it on book profits and in the process increasing the book profits. 19. Both the learned Counsels appearing for the assessee and the department have agreed that the issue is squarely covered by the decision of the Coordinate Bench in assessee s own case in ITA No.835 to 837/Hyd/2005 dated 02-07-2012 for AYs. 2001-02 to 2002-03 and 2003-04. The Co-ordinate Bench while considering identical nature of dispute, held as under: 10. We have heard both the parties on this is .....

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rof its of the business under clause (baa). The assessee relies on the recent decision of the Supreme Court in the case of Ajanta Pharma Ltd v CIT (2010) (327 ITR 305). The assessee submitted that the Apex Court has approved the Special Bench decision of ITAT in DCIT v Syncom Formulations ( I) Ltd. (2007) (106 ITD 193). 11. The DR fairly conceded that the decision of the Supreme Court in the case of Ajanta Pharma (supra) is against the Department and in favour of the assessee. The Apex Court lai .....

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